Opportunity Zones

Newly created on January 1, 2018, Congress established the Opportunity Zones program to provide tax incentives for investors to re-invest any unrealized capital gains into OZ’s designated by each state. Explore ​Opportunity Zones Map​ and how Galvanized Holdings is helping investors take advantage of this unique program below.

Galvanized Holdings Funds make investments in properties and businesses within Opportunity Zone areas. Galvanized Holdings only invests in Opportunities that achieve our risk-adjusted return hurdles without the benefit of the tax incentives... Galvanized Holdings views these tax incentives as significant and material, but requires our investments to “make sense” even without the incentives. The end result is that our targeted, after-tax returns are significantly above those of similar investments outside of the OZ’s, potentially by as much as 2x.

Opportunity Zones Background

● The Opportunity Zones Program was based off of the Investing in Opportunity Act which was a bipartisan act passed in was established by Congress under the ​Tax Cuts and Jobs Act of 2017 designed to encourage long-term investments in designated low-income communities across all states.

● A program original proposed by the ​Economic Innovation Group (“EIG”),​ a bipartisan public policy organization founded in 2013.

● Governors from each state nominated low
income census tracts for inclusion in the Opportunity Zone program. Only a limited number of census tracts were included in order to concentrate the capital investment opportunities to encourage meaningful development to take place.

● Opportunity Zone Funds must invest substantially all their capital in operating businesses, equipment, real property located in these designated census tracts.

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Stock Fund vs OZ Fund

The illustrative example allows you to compare the potential after-tax returns of an investment of capital gains in a non-qualified taxable account titled “Stock Fund” compared with an equivalent investment in an Opportunity Zone Fund titled “OZ Fund”. The chart allows you to choose your hold period between 5, 7, or 10 years, your initial investment amount as either $25,000, $50,000, $100,000, $250,000, $500,000 or $1,000,000, and an annualized rate of return between 5% to 15%.

 

Tax Assumptions:

This example assumes a capital gains tax rate of 23.8% (the 23.8% tax is the long-term capital gains rate of 20% plus the 3.8% net investment income surtax for singles earning over $200,000 and couples earning over $250,000). For the Stock Fund, the amount of the initial investment is first reduced by this tax rate before the hypothetical investment. Example, if the initial capital gain used for investment is $1,000,000 then the amount of hypothetical reinvestment into the stock fund would be $762,000 to reflect the 23.8% tax being paid prior to investment. The investment of the $762,000 would then appreciate at the annualized return that you have selected. In contrast, with the capital gains tax-deferral of the OZ Fund, this capital gains tax would not be paid until the investment in the OZ Fund is liquidated or exchanged.

 

Hold Period Assumptions:

The hold period assumptions assume that any investment made is made prior to specific target dates that are laid out below and either stipulated or implied by the Opportunity Zones section of the Tax Cuts and Jobs Act of December 22, 2017.

 

5-Year Hold Period:

The assumptions of a 5-Year hold period assumes that you have made this investment into a Qualified Opportunity Zone Fund “QOZ Fund” on or prior to December 31st, 2021. By making your investment into the QOZ Fund and your investment would receive a tax deferral on prior capital gains tax owed until December 31st, 2026. Also included in the calculations is the benefit from being invested in a QOZ Fund for a minimum of five years for which your original deferred tax liability is reduced by 10% while the remainder is taxed at the assumed rate of 23.8%. The performance of both the stock fund and the OZ Fund compound annually at the rate of return you have selected.

 

7-Year Hold Period:

The assumptions of a 7-Year hold period assumes that you have made this investment into a Qualified Opportunity Zone Fund “QOZ Fund” on or prior to December 31st, 2019. By making your investment into the QOZ Fund and your investment would receive a tax deferral on prior capital gains tax owed until December 31st, 2026. Also included in the calculations is the benefit from being invested in a QOZ Fund for a minimum of five years for which your original deferred tax liability is reduced by 15% while the remainder is taxed at the assumed rate of 23.8% (the 15% tax liability reduction comes from the 10% 5-year benefit and an additional 5% as a 7-year hold benefit). The performance of both the stock fund and the OZ Fund compound annually at the rate of return you have selected.

 

10-Year Hold Period:

The ten-year hold calculations for the OZ Fund assumes that you have made your investment into the QOZ Fund by no later than December 31st, 2019. Secondly this assumes that you have settled your tax liability from the originally deferred capital gain and taken advantage of the 15% reduced tax liability by the required date of December 31st, 2026. The net remaining tax liability is taxed at 23.8% which effectively reduces the net after tax return of the OZ Fund calculations. The remainder capital continues to compound at the selected rate of return. Upon reaching the 10-year hold, all capital gains that have been generated by the investment into the OZ Fund are now eligible for the final benefit of being tax-free distributions. The OZ Fund and the stock portfolio are assumed to be liquidated with the additional capital gains of the OZ Fund being taxed at a rate of 0% while the stock fund is taxed at the assumed rate of 23.8%.

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Eligible Capital

Opportunity Zone Funds can accept capital from ​any ​realized capital gain provided a few criteria are met.

● Capital Gains can come from anything! The sale of stocks, a business, real estate, cars, jewelry​.

● The capital gain was realized and invested into a Qualified Opportunity Zone fund within 6 months.

Core Elements

Census tracts that have been designated by each state and certified by the Treasury as Opportunity Zones. Click here to see a map of all of the Opportunity Zones in the US.
Opportunity​ ​Funds are certified investment vehicles organized as corporations or partnerships for the purpose of investing in qualified Opportunity Zone assets. Funds must hold at least 90% of their assets in Qualified Opportunity Zone Investments.
Opportunity Zone Investments are limited to equity in businesses, real estate, and business assets that are in a Qualified Opportunity Zone.

Tax Incentives

To encourage investment into these Opportunity Zones, certain incentives are being provided to encourage investors to reinvest their capital gains into these projects. The benefits increase the longer an investor holds the investment.

Our Focused Real Estate Investment Areas

Unlike other firms offering one-off investments, Galvanized Holdings intends to primarily invest in greater scale in only a handful of select Opportunity Zones.

It is our belief that we can increase what we call the “Gentrification Potential” and create a higher potential than a single OZ may, as a whole, move from Class C to Class A by executing multiple developments in numerous asset classes in that OZ. In other words, we believe there exists “Gentrification Risk” to build a single development in an area needing economic revitalization and then “hoping” that other projects are completed to bring the area over the tipping point towards Gentrifying. Galvanized Holdings plans to bring, to the extent feasible and appropriate for the area, all asset classes including apartments, office, entertainment, industrial, retail, medical office, senior housing, and storage assets to specific Opportunity Zones. In order for an area to turn, residents will need convenient access to all of these services and their related jobs.

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Characteristics

Opportunity Zone Characteristics:

● Near or walkable to Major Employment Centers
● Near or bordering areas of high housing prices (above that of the MSA’s median)
● Natural Amenities (e.g. parks, running and biking trails, water, views)

Opportunity Zone Funds can accept capital from ​any ​realized capital gain provided a few criteria are met.

● Cultural Amenities (e.g. museums, theaters, educational opportunities)
● Living Amenities (e.g. mass transit options, golf courses, hospitals, restaurants, retail establishments, freeway access)
● Strong Schools as measured by test scores (a more important characteristic for suburban properties)
● Favorable demographics as measured by average median income and educational attainment
● Above average job and population growth
● Limited ability to entitle, develop, and deliver new product cost-effectively

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City Characteristics

● Business Friendly (e.g. No State/ City taxes)
● Landlord Friendly
● Net In-migration (are people choosing to move to a city or are they leaving it)

● Generally, where people want to live! (our top markets are often listed amongst the top most desirable cities in which to live in the US)

Supporting Industries

● Energy
● Trade
● Technology
● Medical & Pharmaceutical

● We have incorporated these factors into a proprietary algorithm that we use to define the Opportunity Zones that we believe offer the highest Gentrification Potential

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PRIVATE EQUITY

Galvanized Holdings invests not only in the Real Estate in Qualified Opportunity Zones, but also in the areas’ businesses. By providing the capital for businesses to expand into Opportunity Zones, we not only seek to create new employment opportunities, but also add additional services that may have formerly not been as convenient to the local residents.

Galvanized Holdings’ Private Equity Funds invest in businesses in Qualified Opportunity Zones… but really we invest in people. Galvanized Holdings partners with successful business owners that are looking to grow an existing business and/ or add new locations, have experience in operating multiple locations, and have proven their ability to:
● Assess “top tier” locations
● Create local brand awareness
● Manage human capital
● Employ technology and modern techniques to manage expenses
● Succeed
● Have a proven track record and produce consistent and growing profits
● Are of a proven genre and not “fads”
● Have a strong local, regional, or national brand
● Serve a growing consumer base and growing demographic over the long-term
Galvanized Holdings may take an active or inactive roll in a company depending on the size of the investment. We invest through:
● Acquiring an existing business/ location
● Acquiring multiple locations of a brand through a portfolio acquisition
● Providing capital to an existing, proven business, for the addition of new locations
● Providing capital to remodel/ modernize an existing location
● Name-Brand Franchises
● Home Care/ Service
● Personal Care
● Medical Supply
● Logistics

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